The journalist Gary Rivlin has a chilling investigative piece in The Nation about the massive assault on the Dodd-Frank Wall Street Reform Act since its passage in 2010. It illuminates the ways of Washington in an era of big money and how passing laws may be one thing, but fully enacting them is quite another when swarms of lobbyists work full-time to throw sand in the gears of government.
A key takeaway from the article is that the financial industry viewed the tortuous passage of Dodd-Frank as merely a prelude to an even bigger battle over implementation. Rivlin quotes a top industry lobbyist as saying that the completion of the bill was just "halftime."
So who's been winning the second half of the financial regulation game? The banks, drawing on seeminlgy endless resources. Rivlin writes:
In the months leading up to Dodd-Frank’s passage, the big story was the staggering sums of money being spent by the industry to defeat the bill—more than $1 billion on lobbying alone, according to one estimate. Yet, incredibly, the financial sector dramatically increased its spending after Dodd-Frank was signed. . . .
Dodd-Frank’s Achilles’ heel is that it leaves the tough work of writing the actual regulations to existing federal agencies like the Federal Reserve and the Securities and Exchange Commission, which had failed so miserably at protecting the public interest in the run-up to the 2008 crash, as well as to backwater independent agencies like the Commodity Futures Trading Commission (CFTC), which was tasked with regulating a derivatives market that played a central role in the collapse of the global economy. . . .
The story of how Wall Street lobbyists worked the halls of Congress, blocking the appointment of Elizabeth Warren, Obama’s first choice to head the CFPB, or pushing bills aimed at defanging Dodd-Frank, is fairly well-known by now. But it was the stealthy work of battalions of regulatory lawyers, who descended on the private offices of regulators deep inside the bureaucracy, that has proven more crucial to the industry’s effort to pick off pieces of Dodd-Frank. There, a kind of ground war has been going on for almost three years, with the regulators waging hand-to-hand combat to defend every clause and comma in Dodd-Frank, and the lawyers fighting to insert any loophole they can to protect their clients’ extraordinary profits. This is how the miracle that was the making of Dodd-Frank—hailed as the most comprehensive financial reform since the 1930s—became a slow-moving horror movie called “The Unmaking of Dodd-Frank”: a perfect case study of the ways an industry with nearly unlimited resources can avoid a set of tough-minded reforms it doesn’t like. . . .
Three years after Dodd-Frank was passed, only 148 of the 398 rules requiring action by regulators have been finalized, and draft versions have yet to be submitted for half of the remainder.
At this rate the law won't be fully enacted until, oh, sometime after the next financial crisis.
One especially depressing finding of Rivlin's investigation -- hardly news, but still shocking -- is just how many financial regulators have joined lobbying firms in recent years. Rivlin writes sympathetically about how Gary Gensler, head of the Commodities Future Trading Commission, is regularly lobbied by former CFTC commissioners or staff -- now working at exponentially higher salaries. Rivlin writes: "fully three-quarters of those who had served as CFTC commissioners over the past decade are among the noisy crowd of lobbyists beseeching him every day to soften the proposed derivatives rules, delay their implementation or simply chuck them out altogether."
(Gensler, by the way, emerges as the great hero of Rivlin's story -- a former Goldman Sachs exec fighting to rein in an industry that puts the entire global economy at risk.)
Finally, Rivlin explores how industry has turned to the courts to try to block implementation of Dodd-Frank rules, using regulations on cost-benefit analysis -- a strategy that my colleague, Wallace Turbeville has written often about here.
The piece is investigative journalism at its best. And the stakes could hardly be higher.